If you’re counting down the days until you turn 65 and don’t have to pay those cruel health insurance premiums anymore, Suze Orman has a hard memory for you.
Medicare is far from free.
“I want you to have a clear picture of how much health care will cost you when you retire,” the lender recently wrote on its blog, pointing to a government report that shows the average out-of-pocket costs for seniors. $6,800 per year.
Suddenly retirement doesn’t look so relaxing. But once you know how much you need to save, you can start working on a plan — and Orman has some advice for getting ahead of the problem.
What is the damage?
How much you will eventually get pay for coverage depends on which options you choose.
The basic form of Medicare is known as “original” or “traditional” Medicare. Both names refer to Medicare Parts A and B.
Most people don’t pay a premium for Part A, which covers your hospital costs and some home care services. However, you will incur a significant deductible when you are admitted, and a long hospital stay may incur additional costs.
You have to pay a monthly premium for Part B, which can cover your doctor’s appointments, exams, tests, and a few other things.
As Orman points out, a retiree with an income of less than $88,000 can expect to pay $148.50 a month this year. And since there’s no limit on out-of-pocket expenses, serious medical conditions can still bury you in unexpected bills.
Don’t forget add-ons and fines
The other problem is that parts A and B don’t cover everything an aging body needs. Prescription drugs are not included, and unless President Joe Biden succeeds expansion of traditional Medicare, eyesight, hearing and dentistry will not be covered anytime soon.
That’s why so many people choose to pay for private add-ons or alternatives under the Medicare umbrella.
Part D plans, which cost an average of $32.74 per month last year, will help with prescription drugs, while supplemental plans, known as Medigap, can help pay high out-of-pocket costs.
At this point, you might decide to ditch traditional Medicare completely and opt for a private Medicare Advantage Plan — that’s Part C.
Whatever you decide, don’t drag your feet. In most cases, if you don’t apply when you first qualify, Parts A, B, and D come with serious late penalties that could haunt you for the rest of your life.
For Part B alone, your premiums could increase forever by 10% for every year you waited.
How to deal with these costs?
Between the premiums, add-ons, and penalties, you can see how easy it would be to spend $7,000 out of pocket each year, even with Medicare’s long-awaited protection.
“And that’s just in today’s world. If you don’t retire for five, ten or more years, you know damn well that those costs are going to be even higher,” Orman added in the blog post.
“For those of you nearing retirement and now realizing that your health care costs will be higher than you anticipated, please stick to your truth.”
What does she mean by that? Orman tells anyone stressed by their financial security to consider “what else you could do but worry.”
And, as it turns out, there’s plenty you can do.
Start saving right away
No matter how close your retirement is, Orman says it’s important to start preparing right away.
“To give yourself a life where you are not constantly stressed about money, you need to take important steps today. Not waiting. I hope not. Don’t give up,” Orman wrote for the AARP blog last year.
Step 1 should lock cheaper health insurance from now until retirement. Normally, searching for a better rate can take a long time, but a few sites allow you to compare quotes from over 200 providers in minutes.
Beyond that? Orman is a big believer in investing through a Roth IRA because your growth and qualified withdrawals are tax-free.
“You’ll be so happy when you retire if you have a pot of savings that you can use without paying taxes.”
Most banks and brokers – both traditional and online – deal with Roth IRAs. You can even open one from a automated investment service.
Earn a little extra
Once you have a plan in place, you may find that you need to set aside more money than your current budget allows.
To relieve the pressure, Orman says, you may need to consider working until age 70, but you don’t have to keep doing the same stressful job.
Even if it doesn’t pay off that much, switching to more enjoyable work later in life can be a “key ingredient” to your long-term financial plan.
If you have a fun but marketable skill — like writing, drawing, music, or even voice acting — you don’t have to wait. You can now boost your income with a profitable side business.
“You always have the power to change whatever you want,” Orman says.
Stretch out the dollars you have
Giving your budget a modest boost may not be enough to fund a happy and healthy retirement. In that case, Orman says, you need to scale back to your liking.
“What I see is that many households are shifting their spending towards fulfilling wants rather than needs,” Orman wrote for the AARP.
Every time you consider a new purchase — whether it’s furniture, a cell phone, a computer, or a renovated bathroom — you wonder if you’re only paying for what it takes to meet that need. cheaper option available?”
One way to put that advice into practice is to download a free browser extension that: automatically searches the web for better deals and coupons every time you shop online.
As Orman says, “Live below your means, but within your needs.”
This article provides information only and should not be construed as advice. It comes without any kind of warranty.